Rona rejects Lowe’s $US1.8bn takeover bid

The American home improvement chain Lowe’s said it would continue to pursue a deal for Rona, a Canadian rival, after its $US1.8 billion takeover offer was rejected.

Lowe’s, which is in a joint venture with
Woolworths
to build a chain of Masters centres to take on Bunnings, is the latest of American retailers looking for growth in Canada, which boasts a comparatively healthy economy and housing market.

“Bottom line, we believe that our proposal is good for Rona and the communities it serves in Quebec as well as across Canada, and it is also good for consumers," Robert Niblock, the chairman, president and chief executive of Lowe’s, said in a statement.

But the province of Quebec, where Rona has its headquarters, said it would try to prevent any takeover.

Quebec finance minister Raymond Bachand said a Lowe’s deal “does not appear to be in the interest of Quebec or Canada." He said that the province was considering several options, including the creation of a fund “to defend the interests of Quebec."

In a statement, Rona said that it was approached by Lowe’s on July 8 with a “non-binding" offer to pay US14.50¢ a share for the company. Rona said it formally rejected the offer on Thursday.

Two days later, Lowe’s indicated it would move forward with its hostile bid. Lowe’s said that it had support of about 15 percent of Rona’s shareholders.

Michelle Laberge, a spokeswoman for Rona, did not directly explain why the company waited for several weeks to announce that it was a takeover target except to say that its board immediately formed a special committee and hired outside advisers to evaluate the bid.

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Company Profile

Lowe’s only entered the Canadian market in 2007 and has about 16 big-box stores. Rona, by contrast, has about 1,500 retail outlets of various sizes, including franchises and affiliated stores. It operates about 840 stores under its own name.

But Lowe’s arrival has added to the squeeze Rona was feeling from the Canadian subsidiary of Home Depot, which operates about 180 stores. Many analysts have said that there is not enough room in the Canadian market for three large players. Home Hardware, a cooperative owned by 1,080 retailers, has also been expanding the number of its large stores that also offer a full range of building supplies.

At Rona’s annual meeting in May, Jean Gaulin, its chairman, firmly rejected any notion that the company would be sold.

“Rona is not up for sale," he said. “Not part of it, not all of it, not bits and pieces of it. It’s not for sale."

Rona is a major corporation in Quebec, and the province’s investment and pension fund, Caisse de dépôt et placement du Québec, owned about 12 percent of its shares as of last month.

The fund issued a carefully worded statement neither supporting nor rejecting the bid. The fund, which operates at arm’s length from the government, said however that it would consider several factors, including the impact of a takeover on workers and franchise holders as well as the long-term impact of any deal. Any takeover would will also require approval under federal foreign investment laws.

The company’s profile is particularly high nationally at the moment because of Rona’s sponsorship of the Canadian Olympic team and its extensive sponsorship of broadcasts of the London games. Its Olympic campaign strongly emphasises the company’s Canadian ownership and commitment to Canadian suppliers.

Lowe’s promised to keep Rona’s headquarters in Boucherville, Quebec, and to focus on Canadian suppliers.

American retailers have been trying to tap into the economic strength of their rivals to the north.

Target is preparing its move into Canada after acquiring the leases of 189 Zellers discount department stores from the Hudson’s Bay Company. Zellers struggled significantly after the entry of Wal-Mart into the Canadian market. Hudson’s Bay said this week that the remaining 64 Zellers stores would be closed by next spring, leaving about 6,400 people without jobs.

At the other end of the retail spectrum, several Canadian news outlets have reported that Nordstrom has acquired the leases of four Sears Canada stores for its first move into Canada. While Nordstrom has not confirmed those reports, Sears has announced that it is leaving those locations.